Are the good times over for Rovio?
The Finnish game developer behind Angry Birds painted a startling picture of its business with its latest earnings, reporting $37 million in profits, down 52% compared with the previous year, on revenues of $216 million.
For Rovio, Angry Birds has been the brand that keeps on giving. The franchise has been downloaded over 2 billion times worldwide and expanded into a stable of themed games, cartoons, toys and other memorabilia. Indeed, there were even Angry Birds Chinese moon cakes once.
Rovio’s earnings plunge comes at a crucial moment for the business. When Angry Birds launched in 2009, casual gaming on mobile devices was a nascent market. Now newer entrants have popped up, such as fellow Finnish game studio Super Cell, the developer behind the popular Clash of Clans games, and Candy Crush-maker King Entertainment (KING), which went public in March.
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Rovio’s problem is simple: “They’ve never had any success beyond Angry Birds,” said Michael Pachter, a Wedbush Securities analyst. Although Zynga (ZNGA) may not be the huge, thriving company it once was in 2011, it’s also not dependent on one franchise. Adds Pachter: “You can name five or six Zynga games that have done well, like FarmVille, CityVille and Draw Something.
That’s not the case with Rovio, which didn’t have any household brand names prior to Angry Birds and hasn’t had one since. And worse, Angry Birds just isn’t the huge moneymaker it could be: the gameplay may still be a hoot for many, but from a business standpoint, there’s no real incentive for players to pony up for virtual items.
“In Angry Birds, you don’t run out of lives,” explains Pachter, who argues it lacks the arcade game-like mechanisms at its core that really drive users to pay. “That’s where I think Supercell and King have been so successful. They came up with games where people are comfortable spending money.”
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So if the Angry Birds game is a laggard when it comes to making money, that leaves little for Rovio to do but develop compelling all-new game experiences, and as any game studio can attest, that’s easier said than done. The company seems aware of the challenge it faces: “After three years of very strong growth, 2013 was a foundation-building year,” chief financial officer Herkkop Soininen offered in a company statement this Monday.
Rovio grew as a company from around 500 employees in 2012 to 800 last year. And last December, it released the racing title Angry Birds Go! — a game designed with a “freemium” model from the start, with currency and virtual items sold inside the game. Still, it will probably take more than another Angry Birds game — albeit one with a different business model — for Rovio to prove it’s more than a veritable one-hit wonder.